Do you have the correct crush washer under the neutral switch? The correct item is thicker than a conventional one.

I assume so bmwrench, it came with the switch.

disston, I don't need/care for the light. It was just a matter of fixing something that was broken, except nothing is broken.
I do remember when recently changing bearings etc, that the switch was pushed in when in neutral. It has a pre '76 part in there.
My options are to leave the wire disconnected as has been the case for 13 years, or get a pre 76 switch.

It is difficult to see in the posted pics but I looked at them and others that I took, and compared with the parts on Antons site.
I do believe the part is wrong, hence the problem.

I don't think the shift update is quicker at all. I noticed that it was a longer throw when I put one in. I think the deal with the shift cam that got more pointy is that the roller has less of a tendency to hang up in the middle causing a false neutral. And the improvement of the pawl is supposed to help prevent a broken pawl spring, but apparently doesn't eliminate it completely. I think there is more to it than my simple explanation.

I don't have that trans in my bike right now but someday it will be back.

Some people like how the earlier ones shift compared to the later ones. I can't understand why but . . . .

As it turns out that I have the antiquated shift system, I can only surmise that the new mechanism is something to behold.

I say that because my shifter is as quick as I need it to be. No false neutrals, positive up and down shifts.
Achieving said affinity with my shifter does come down to almost precise positioning of the shift lever tho'

IIRC, BMW began installing the shift kit for the production year 1983. We installed shift kits under warranty in '81-'82 bikes if the customer complained about shifting problems. This is moot as far as the neutral switch is concerned since they used the same neutral switch from 1976.

It's my opininon that the shift kit was needed because of the lack of flywheel in the '81 and later bikes. I'm not a big fan of the shift kit; it raises lever effort, and I'm lazy.